Same-sex partners entitled to survivors pension benefits

Pension schemes that calculate same-sex survivor's pension benefits based on the statutory minimum will need to revisit their scheme rules following the Supreme Court's decision in Walker v Innospec Ltd and others [2017] UKSC 47. Mr Walker's case against his employer, originally begun in 2012, was that any survivor's pension payable to his same-sex spouse should be based on his entire pensionable service, as it would be if he were in an opposite-sex marriage. The financial effect on the pension his spouse would have received was a reduction of £44,000 per annum.

The court held that the right to an equal survivor's pension was not "permanently fixed" as the pensionable service it would be based on accrued. Rather, it should be assessed at the point that it becomes payable, provided Mr Walker and his partner remained married and his partner does not predecease him. At that point, "denial of a pension would amount to discrimination on the ground of sexual orientation" (paragraph 61). It ruled that the Court of Appeal was wrong to conclude that only service after the Equal Treatment Framework Directive had been implemented should be taken into account for calculation purposes, confirming that Mr Walker had an "entitlement to a pension calculated on the basis of his years of service before the Directive was transposed" (paragraph 67).

The decision will have an immediate impact on schemes that have not fully equalised survivor benefits for same-sex partners. This may be particularly significant for public-sector pension schemes. A 2014 DWP report concluded that equalisation between the sexes, as well as based on sexual orientation, could cost them around £2.9 billion. (Walker v Innospec Ltd and others [2017] UKSC 47.)

BACKGROUND:

Mr Walker worked for Innospec Limited from 1980 until 2003, when he retired. He had lived with his male partner since 1993, first entering into a civil partnership in early 2006, and then marrying. In 2006 Mr Walker sought clarification from Innospec as to the amount of the survivor's pension that his civil partner would receive on his death. As the entirety of Mr Walker's pensionable service pre-dated 5 December 2005, he was told that his civil partner would receive only a small pension, based on his contracted-out rights, of approximately £1000 a year. Conversely, if had been married to a woman, or subsequently divorced his partner and then married a woman, she would be entitled to a two-thirds pension.

Framework Directive and the Equality Act 2010

The Equal Treatment Framework Directive (2000/78/EC) (the Framework Directive) established a general framework for equal treatment and non-discrimination in employment law in the EU from 27 November 2000. The sexual orientation aspects of the Framework Directive were implemented in the UK by the Employment Equality (Sexual Orientation) Regulations 2003 (SI 2003/1661), which came into effect on 1 December 2003. These regulations prohibited direct and indirect discrimination in the workplace on the grounds of sexual orientation.

The Sexual Orientation Regulations were revoked with effect from 1 October 2010 and replaced with similar provisions contained in the Equality Act 2010 (EqA 2010). In particular, a non-discrimination rule is implied into the rules of an occupational pension scheme, prohibiting discrimination on the grounds of sexual orientation (section 61, Equality Act 2010 (EqA 2010)).

The Civil Partnership Act 2004 came into force on 5 December 2005 and allows same-sex partners to enter civil partnerships. Registered civil partners must be treated in the same way as spouses on the death of a member, but only in relation to pensionable service from 5 December 2005. This partial exemption to the requirement to equalise survivor benefits is contained in paragraph 18 of Schedule 9 to the EqA 2010. In practice, many schemes have granted civil partners the same rights to receive a full spouse's pension as married partners.

Progress of Mr Walker's claim

Prior to his appeal to the Supreme Court, Mr Walker's claim had progressed through earlier stages of the courts and tribunal process:

Employment Tribunal. The Tribunal upheld his claim, ruling that Innospec and the pension scheme trustees had unlawfully discriminated against him (both directly and indirectly) on the basis of his sexual orientation. The Tribunal held that the partial exception in paragraph 18 of Schedule 9 to the EqA 2010 for pre-5 December 2005 service contravened the Framework Directive and should be interpreted in such a way as to be compatible with the Framework Directive. For more information on this decision, see Legal update, Tribunal rules on pension rights for civil partners.

Employment Appeal Tribunal. The EAT overturned the tribunal's decision and upheld the validity of the partial exemption from the requirement to equalise enacted in the EqA 2010. The EAT ruled that the Framework Directive did not have retrospective effect before the date it was required to be transposed into national law (2 December 2003), and therefore the tribunal held that partial exemption in the EqA 2010 was not incompatible with it.

Court of Appeal. The court dismissed the appeal relying on two principles of EU law: the "no retroactivity" principle and the "future effects" principle. The principle of "no retroactivity" meant that conduct which was lawful when it occurred cannot retroactively become unlawful. To require payment of a spouse's pension to Mr Walker's husband, after Mr Walker's death, would be to give the Framework Directive retrospective effect, it concluded that the "no retroactivity" principle precluded this.

Mr Walker appealed to the Supreme Court and the case was heard in March 2017.

Decision

The Supreme Court upheld Mr Walker's appeal finding that paragraph 18 of Schedule 9 is incompatible with the Framework Directive. In particular, paragraph 18(1)(b) which authorises a restriction of payment of benefits based on periods of service before 5 December 2005 cannot be reconciled with what the court considered to be "the plain effect of the Directive" (paragraph 72). Paragraph 18 should be disapplied.

Because of this Mr Walker's husband, provided he does not predecease him, and that they remain married at the time of Mr Walker's death, is entitled under the Framework Directive to a spouse's pension calculated on the basis of all the years of Mr Walker's service with Innospec.

When does a pension entitlement become "permanently fixed"?

The court confirmed that the general rule under EU law (and UK legislation) is that legislative changes only apply prospectively unless expressed to the contrary. The "no retroactivity" and "future effects" principles, that the Court of Appeal had relied on, have been established by the ECJ to draw a distinction between the retroactive application of legislation to historic events, and to prospective events.

For the purposes of deciding Mr Walker's claim, it was necessary to determine if the legal situation had become "permanently fixed" (paragraph 25). In most cases this is not a problematic assessment to make. However, in occupational pension schemes, benefits accrue based on assumptions in place at a point in time. Where those assumptions are "upset" by subsequent equal treatment requirements, it becomes necessary to assess at which point entitlement to pensions become fixed, for example, when the pension is paid.

The Court of Appeal had wrongly concluded that the entitlement to a survivor's pension is permanently fixed as it is earned, based on the ECJ's decision in Ten Oever v Stichting Bedrijfspensioenfonds Voor Het Glazenwassers [1993] IRLR 60. It concluded that the same principle could be applied where the law is changed not by a judgment, but by legislation. This was incorrect, with the Supreme Court confirming it was "vital to keep the two concepts distinct" (paragraph 44). The ECJ in Ten Oever had limited the temporal application of its judgment based on affected parties' reliance on a different understanding of the law and the potential for their "legitimate expectations" to be upset. However, such limitations were applied only in "the most special circumstances". In Ten Oever (and in Barber v Guardian Royal Exchange [1990] 2 All ER) these had been held to exist. However, the fact the ECJ decided to place a temporal limit on its judgments did not inevitably have a bearing on the presumption that rights established by legislation should not be activated at the time they came into force (paragraphs 45 and 46).

The point to judge when discrimination occurs is when the pension becomes payable, that is when Mr Walker dies, and an equal survivor's pension is denied to his partner (paragraph 61). Absent any special circumstances to require the imposition of a temporal limitation, a survivor's pension based on equal treatment should be granted.

On the issue of whether pre-5 December 2005 service be taken into account, the court considered that the decisions in Maruko v Versorgungsanstalt der deutschen Bühnen (Case C-267/06) and Römer v Freie und Hansestadt Hamburg (Case C-147/08) "put success for Mr Walker’s claim beyond doubt" (paragraph 46). Based on the decision in Romer, although the entitlement to equal survivor's pension payments could not have arisen before Directive was implemented in 2003, when such a pension came into payment after that date its calculation had to be based on the full period of his pensionable service, irrespective of the fact that this accrued before the implementation date (paragraphs 64 to 67).

Comment

The decision finally clarifies the position for same-sex survivor's pensions, an issue which will have been an outstanding item on most occupational DB schemes and trustee agendas since the Employment Tribunal's decision in 2012.

Schemes whose rules rely on the temporal limitation on pensionable service will now need to amend this to reflect this decision. Schemes who are already paying pensions to same-sex survivors on unequal basis should revisit these to consider whether these should be increased, and also whether there should be any back-payments made to reflect the impact of this judgment. However, in practice many schemes have "equalised" such benefits already. The judgment may be of greater concern to the public sector pension schemes. A 2014 report from the DWP, Review of Survivor Benefits in Occupational Pension Schemes, revealed that the capitalised cost of removing differences in survivor benefits between opposite sex surviving spouses, same-sex surviving spouses and surviving civil partners in the public service pension schemes was estimated at around £2.9 billion, see Legal update, Equalising survivor benefits: review issued but decision needs careful consideration.